3 Tech Stocks Investors Should Always Buy During Market Weakness

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Jhe market has undoubtedly been cruel throughout 2022, putting a beating in many wallets. Although there were positives, such as energy, the majority of stocks fell throughout the year.

We found ourselves in a very unique economic situation after emerging from a once-in-a-lifetime pandemic, to say the least. Inflation soared to levels not seen in decades and the Fed turned to a hawkish nature, raising borrowing rates to alleviate the problem.

As the Fed puts it, this is an attempted soft landing for the US economy. While most know this task will be very difficult to accomplish, the Fed remains confident in its plan.

Tech stocks have been among the biggest victims of the bear market. With the increase in Fed borrowing rates, the market priced in the impact on the future cash flows of high-flying tech companies. Additionally, tech companies typically borrow at a higher rate than others to fuel growth.

However, bears cannot stay forever. Three highly coveted companies – Apple AAPL, Microsoft MSFT and Alphabet GOOGL – are three stocks that will undoubtedly lead the tech rebound. The year-to-date chart below shows the stock performance of the three companies while incorporating the S&P 500 as a benchmark.

Image source: Zacks Investment Research

Let’s see why it is very beneficial to add to these positions during periods of weakness, such as 2022.

Build a bigger position

Let’s face it – timing the market at the right time is almost impossible. The saying “buy low, sell high” is hardly beneficial; if investors could predict these levels consistently and accurately, the market would be totally out of balance.

Of course, there is the “buy the dip” approach, which is inherently risky. A lot of people are buying low, but it keeps going down – it’s never fun. One of the best ways to create a bigger position for your long-term winners is the simple approach to buying average.

Averaging is a strategy in which investors spread their initial purchases over periodic periods, thereby reducing the impact of volatility on the overall purchase. This gives you the ability to “buy the dip” and add to those winners whenever they enter uptrends.

This is a great way to limit overall risk, as no investor wants to see an initial position become an unfavorable entry point due to market conditions.

Apple

Apple AAPL shares fell quite broadly in 2022. However, the five-year chart below shows that the shares are trading near October 2021 levels and have rebounded beautifully.

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Image source: Zacks Investment Research

Additionally, Apple’s forward P/E ratio fell to 23.8X, nearly half of 2020 highs of 41.5X. The value represents a rich buying opportunity relative to where AAPL shares have traded over the past few years.

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Image source: Zacks Investment Research

Final estimates remain strong, with the FY22 EPS estimate of $6.11 showing a significant 9% year-over-year increase. Additionally, earnings are expected to grow a further 8.7% in FY23.

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Image source: Zacks Investment Research

Microsoft

Microsoft MSFT has been another victim of the technology rout, with shares losing nearly 20% of their value since the start of the year. However, the five-year chart below shows that stocks have rebounded wonderfully from summer 2021 levels.

Zacks Investment Research
Image source: Zacks Investment Research

Based on the valuation, Microsoft’s 29.0X forward earnings multiple might seem a bit pricey at first glance. Still, the value is nowhere near 2021 highs of 37.5X and is just one tick above its median of 28.3X over the past five years.

Zacks Investment Research
Image source: Zacks Investment Research

Earnings estimates for MSFT show notable earnings strength. For FY22, the EPS estimate of $9.30 reflects a significant 17% year-over-year profit increase, and for FY23, profit is expected to grow an additional 14% in double digits .

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Image source: Zacks Investment Research

Alphabet

Alphabet GOOGL shares have fallen quite broadly throughout 2022, although an upcoming stock split is a catalyst that may help send stocks back in the right direction. Additionally, Alphabet shares have rebounded beautifully from April 2021 levels.

Zacks Investment Research
Image source: Zacks Investment Research

Perhaps the most attractive name of the three in terms of valuation, Alphabet sports a forward earnings multiple of 20.5X. The value is well below the median of 27.2X over the past five years and is a far cry from 2020 highs of 39.1X.

Zacks Investment Research
Image source: Zacks Investment Research

The earnings chart is slightly concerning for FY22, as the EPS estimate of $111.86 reflects a marginal 0.3% year-over-year decline in earnings. However, for FY23, the earnings picture turns positive again – the EPS estimate of $131.77 shows a considerable 18% year-over-year net income growth.

Zacks Investment Research
Image source: Zacks Investment Research

Conclusion

While these mega-cap giants have undoubtedly had poor stock performance throughout 2022, zooming out on the charts paints a much more positive picture. We can see that the shares of all three companies have respected previous trading levels.

Additionally, valuation metrics are at levels not seen in some time, presenting a rich buying opportunity for some of the world’s largest companies.

Investors need to continue to build larger positions within these companies, and using cost averaging is a great way to do this.

Bears will eventually run out of powder and the rebound will be massive.

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Apple Inc. (AAPL): Free Inventory Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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